Company structure finance

[The Dark Knight]

Hey fellow investors,
My Wife and I started a part time business which we run on our weekends. We set it up as a company both as directors to run the business through that structure. It has been more successful than we anticipated as I'm personally close to reaching my land tax I'd like to buy a Investment property through the company. From what I can gather it won't effect my personal land tax as it is under the company? We have looked at some loans so far and are aware you need a minimum 20% deposit. Can we use our personal money to make up the rest of the 20% deposit and will banks consider this or does the deposit need to be entirely from the business income stream. Thanks Tony

 

[Rolf Latham]

Im not an advisor in the area, but buying an enduring asset in a trading company name doesnt sound like a good idea

ta
rolf

 

[Rolf Latham]

We have looked at some loans so far and are aware you need a minimum 20% deposit.

there are plenty lenders that will do co loans to 90 %

Smells like westpac to me

ta

rolf

 

[Redom]

Hey fellow investors,
My Wife and I started a part time business which we run on our weekends. We set it up as a company both as directors to run the business through that structure. It has been more successful than we anticipated as I'm personally close to reaching my land tax I'd like to buy a Investment property through the company. From what I can gather it won't effect my personal land tax as it is under the company? We have looked at some loans so far and are aware you need a minimum 20% deposit. Can we use our personal money to make up the rest of the 20% deposit and will banks consider this or does the deposit need to be entirely from the business income stream. Thanks Tony

Hey Tony - with Rolf, not sure using your trading company is the best vehicle to purchase an IP.

Alternatively you my be able to set up a separate company and apply a personal guarantee (using business income). Getting 90% lends on this is pretty simple and not very different to a normal individual resi purchase. Many serious investors purchase property this way for asset protection reasons.

If your income is solely from the business, it'll need to be in operation for 2 years + before banks will accept it for servicing at 90% lends.

As for the land tax issue, different states have different rules - i'm not an expert, but i'm sure one of the accountants on SS can provide more info. You can probably go through the OSR website and get the answer yourself or troll through previous land tax threads.

Cheers,
Redom

 

[Terry_w]

Hey fellow investors,
My Wife and I started a part time business which we run on our weekends. We set it up as a company both as directors to run the business through that structure. It has been more successful than we anticipated as I'm personally close to reaching my land tax I'd like to buy a Investment property through the company. From what I can gather it won't effect my personal land tax as it is under the company? We have looked at some loans so far and are aware you need a minimum 20% deposit. Can we use our personal money to make up the rest of the 20% deposit and will banks consider this or does the deposit need to be entirely from the business income stream. Thanks Tony

A trading comapny should not own assets as it is exposed to potential litigation. Consider also who owns the shares.

A company can get a separate land tax threshold in NSW, but there are many other things to consider as well.

If you do use a company then consider a brand new one with an appropriate shareholder. You or the other company or an associate could get the deposit money in by loan or subscroption of shares - loan would probably be better.

You can also get a higher LVR as mentioned by the brokers.

 

[Shahin_Afarin]

You don't need a minimum 20% - plenty of banks which do a much higher LVR even 95%.

The deposit can come from anywhere (i.e. from personal money).

The big potential issue is the income - is the income based from the part time business or from other means.

 

[Marty McDonald]

Sounds like a good one to use a trust for. Sounds like you want to offset income from the business with a neg gearing property? I'm sure Terry W can help with a good structure.

 

[Greg Reid]

It sounds as if you are looking at the issue rather than the overall solution.
If your company is making more money than anticipated and you are consequently paying more tax than wanted, a negative geared IP in the company name may help in the short term but as others have said, not an ideal solution. Super contributions are often an effective way to lower business profits/taxable income.

Land tax is state based and legal entity ownership, so a different legal entity may assist as will owning property in different states.

As to own funds and LVR's, you can normally borrow to 95% with a number of lenders and 90% with most for an IP in a business name. Lenders are generally not concerned with where the deposit comes from depending on the LVR.

 

[Paul@PFI]

Hey fellow investors,
My Wife and I started a part time business which we run on our weekends. We set it up as a company both as directors to run the business through that structure. It has been more successful than we anticipated as I'm personally close to reaching my land tax I'd like to buy a Investment property through the company. From what I can gather it won't effect my personal land tax as it is under the company? We have looked at some loans so far and are aware you need a minimum 20% deposit. Can we use our personal money to make up the rest of the 20% deposit and will banks consider this or does the deposit need to be entirely from the business income stream. Thanks Tony

The bigger issues I identify in your post :
- You need tax advice. This should include land tax strategies. Also explanation about how company profits may be taxed at 30% BUT then there are issues when a shareholder wants to extract more value...The uplift tax, loss of CGT discounts and many other issues pose a problem. Or it may be easy to use the co profits to pay the loan ??? There are strategies here.
- You need to consider structure. Do you want a flexible structure where you can alter ownership % ? Discretion over split of imcome etc ??
- You should NEVER buy the IP in a company let alone one that trades

I understand you say you have maxed your land tax threshold ?? Why not buy interstate ?? Each state has a separate t/hold. That may be a far far simple option. Many investors have a p/folio that comprises a few states for this precise purpose. Land tax is a cashflow killer.

One key issue to get your head around in such a case is where the market is hot and where it is not.

 

[The Dark Knight]

Thanks for all the advise and different options everyone . The only reasons I wanted to do it through the company is to take advantage of the business income via offset and save myself from land tax. If I start a new company without a business just solely for investing. I assume I can just use my personal funds from my fulltime job and the funds from my business to pay for the properties? Thanks

 

[Terry_w]

Thanks for all the advise and different options everyone . The only reasons I wanted to do it through the company is to take advantage of the business income via offset and save myself from land tax. If I start a new company without a business just solely for investing. I assume I can just use my personal funds from my fulltime job and the funds from my business to pay for the properties? Thanks

A company is a separate legal entity so you would want to keep your cash and other company's cash separate for asset protection reasons. But there is no reason why one entity cannot lend another - perhaps at zero interest. Watch out for Dvi7A loans but these won't apply if company A and lending to company B.

Unlike Paul I think a company owning a property can be a good idea in some situations. Another option is a unit trust (fixed) and the company owning the units. This can get the land tax threshold in NSW and allow a few extra strategies but complicates things with Div 7A loans.

 

[Shahin_Afarin]

Thanks for all the advise and different options everyone . The only reasons I wanted to do it through the company is to take advantage of the business income via offset and save myself from land tax. If I start a new company without a business just solely for investing. I assume I can just use my personal funds from my fulltime job and the funds from my business to pay for the properties? Thanks

Yes you can - you will just need a letter from the accountant stating that the business set up purely for purchasing properties is a non trading entity. Thats about it.